Since the earliest days of commerce, industries have looked for ways to reduce costs. For many, this meant designing business models around a lean workforce. Yet, seasonal peaks and troughs and operational pressures exposed a flaw in this thinking. Cue the gig economy worker, or freelancer.
While freelancing has been around for years, it really gained momentum the 90s as the internet went mainstream and opened opportunities for contract workers with specialist skills. With the emergence of online freelance platforms, recent years saw a boom in the gig economy. These days it’s thriving, boosted by sophisticated remote technology and, of course, the COVID-19 pandemic which normalised work-from-home arrangements.
While it can be a great lifestyle, freelancing is not without its risks. Freelancers sacrifice job security, and the benefits of permanent employment for higher rates of pay and the freedom to choose when and for whom they work.
Then, there’s employment uncertainty and the constant need to be hunting down the next assignment along with the lack of steady income and all the inherent budgeting problems that engenders.
Depending on a person’s life stage, the lack of income surety can be a deal breaker.
But it doesn’t have to be!
By following five simple steps, it is possible to minimise the impact of an uncertain income.
- Create a budget and emergency fund
Good financial management begins with a realistic budget. Assess your average monthly income and monthly expenses. Consider essential expenses first, then look at discretionary spending. Understand needs vs wants – be honest with yourself. Next, build an emergency fund; enough to cover around six months of living costs. If you’re thinking of leaving a permanent role to join the gig industry, it’s advisable to build an emergency fund before handing in your notice. - Diversify your sources of income
You know that saying about eggs and baskets? It’s as true for the gig worker as the investor. Maximise and diversify your work opportunities by:
– joining multiple freelance organisations
– joining professional associations and networking groups
– being active on social media platforms like LinkedIn and X (Twitter)
– asking friends and family for referrals and recommendations. - Tax management
Tax is a fact of life so be prepared. Set aside a portion of your income for tax and superannuation. Tax mistakes, however innocently made, can be costly. It’s recommended that you consult a tax professional to understand your obligations and entitlements, including what records you must keep and whether you’re required to register for GST. - Invest in yourself
Gig workers are hired for what they know and their experience. Ensure you stay up-to-date with technology, regulations and trends in your industry. Increase your marketability and access to higher-paying work by subscribing to industry publications, taking online courses and regularly updating your skills and knowledge. - Insure yourself and your future
Staying fit for work is crucial, but accidents and illness happen. Ensure you have appropriate insurance in place to cover you if you become unable to work.
As your financial adviser we can help you develop an appropriate insurance strategy. And don’t neglect your retirement plans. Financial security in retirement requires a long-term view and we can help with this as well.
There’s no doubt that the flexibility afforded by gig work is attractive, but it comes with its fair share of pitfalls.
With preparation, planning and professional advice, it is possible to enjoy the freedom of freelance working without sacrificing your financial security.
The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.
